Q4 2017 GDP Expectation: Oil Sector to Bolster Economic Growth

The National Bureau of Statistics (NBS) is expected to release the GDP report for the last quarter of 2017, on February 27, 2018. We forecast a growth of 5.03% YoY in Q4:2017 and a full year growth rate of 1.62% in 2017, given the improvement in macroeconomic conditions and the monetary policies implemented by the CBN like the regular intervention in the FX markets which boosted FX liquidity for players in the real sector. Also, we note the effect of the weak base of 2016 on economic growth, especially in the oil sector. Our projection is based on the following premises:

We estimate a growth of 43.41% in the oil sector in Q4:2017, given the improvement in oil prices and production volume. The agreement by members of OPEC and its non-OPEC allies to extend caps to production till July 2019, coupled with geopolitical tension in the Middle East, pushed oil prices higher in the period being reviewed; crude oil price averaged USD61.41pb in Q4:2017 (vs. USD51.11pb in Q4:2016). Domestic crude oil production also improved; there were fewer attacks to oil installations in the oil producing region, consequently, output improved to 1.57mbpd in December 2017, as against 1.54mbpd in December 2016, according to OPEC figures. This drove external reserves to a multi-year high of USD38.77bn as at the end of 2017.

The improvement in FX liquidity and the consistent decline in inflation rate also boosted the activities of players in the real sector of the economy. The manufacturing PMI (Purchasing Managers’ Index) averaged 56.73pts (vs. 47.37pts Q4:2016) and stayed above 50pts throughout the quarter, indicating an expansion in the manufacturing sector. Also, consumer spending, which improved in Q4:2017 also stimulated growth in the economy. According to CBN, the Consumer Confidence Index (CCI) returned to positive path after years of maintaining stance in the negative territory, as CCI stood at 1.00pts in Q4:2017 (vs. - 29.8pts in Q4:2016). From the foregoing, we forecast a growth of 2.26% for the non-oil sector.

“While we expect the growth of the oil sector to continue, given favourable oil prices, the recent threats by the Niger Delta militants to commence attacks on pipelines remain a risk to sustainability in oil output.

We envisage that the equities space will remain attractive; the growth of the economy should renew investor confidence and improve participation in the market. Similarly, we also expect the appetite of investors in the fixed income space to remain healthy”